A valuable tool is, however, available to a principal. An Agreement can expressly provide for ‘indemnity’. This will cap the payment at 12 months’ commissions.

No arguing. No legal wrangling. Just 1 year and that’s it.

Without an indemnity, payment will be assessed by the compensation method. A 2 year fixed tariff no longer applies. But this does not mean a principal will necessarily pay less. It could be more.

A multiplier will be applied to an average year’s earnings. This could range from 1 to 3, depending on the success of the agency. Factors include –

Well established agency ?

On an upward curve ?

Successful products ?

If none of these boxes are ticked, the multiplier will be very low. On the other hand, if all the boxes are ticked, a multiplier of 3 may be appropriate. Three years’ income is payable.

Retirement

A company may find that, despite wanting an agent to continue, he has other ideas. Principals are key to agents’ retirement plans.

The same payment issues arise. And it is not essential that the agent be 65 (though the closer he is, the stronger his claim). 

Caution is called for. It is not unknown for people to retire once, only to resurface later working for a competitor.

Planning is required, with long notice periods and other ways to cushion the impact of unexpected retirement.

Reasonable Notice

Principals and agents have substantial freedom to reach their own agreement regarding notice.

If there is no agreement, then the default setting of the Regulations is 3 months. Average earnings are calculated and an agent is entitled to 3 months notice pay.

A Court recently found that ‘reasonable notice’ of termination could be 9 months. So has the Regulations’ default setting changed ?

The Jackson case is significant for a different reason. It relates not to principal/agent but instead to manufacturer/distributor.  Where the latter will struggle to replace lost business or find another brand, then the notice required of a manufacturer may be quite long (eg 9 months).

Costs

‘It’s a matter of principle’ – music to the ears of lawyers. In the event of a claim, however, there should be early assessment of risk.

An agent who is a union member will enjoy special benefits, such as funding claims. Instead of £150 an hour, you find they are entitled to maybe £300 an hour – from you!

A claim of even £10,000 can generate costs of £20,000 on each side. Larger claims produce very large cost figures. Principles are all well and good,  if you’re prepared to pay for them.

Bigger Picture

Take the following hypothetical situation:

2 people do the same job

One is a rep; the other an agent

Both make the same sales

Both take home £40,000

The company is unhappy with their commitment and performance. The brand is very popular but the products sell themselves. These two just ride along.

The rep is sacked and the agent terminated. What risk could the company run from each?

Rep – Unfair Dismissal of £65k capped

No costs

Agent – Compensation of £120k

Costs say £40k

Good advice is paramount, before its too late. There may be compelling reasons to use agents. The industry owes them a great deal and in good times they are invaluable. But companies must appreciate the commercial realities if things go sour.

Michael Morse    

Tel: 0113 225 8811    

Email: mmorse@godloves.co.uk

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